Investors are facing more of the same
Its a new year and it's welcome, but investors can't look forward to much of a change. Uncertainty about the progress of both the Australian and world economies will continue and as this column advised towards the end of last year, share investors will need to hold their nerve.
The good news is that the general consensus is for further improvement in the US, European and Japanese economies while there are mixed assessments of the prospects for Asia and emerging economies. At home, there can't and there won't be any miracle solution to the obvious funding problems facing our federal and state governments.
Put bluntly, a succession of our politicians have over the years placed a higher priority on short-term fixes than on the more challenging, but inevitable longer-term issues including the ageing of the population and the need for infrastructure outlays. As the latest government is finding, dealing with these issues is much more difficult when the funding needs are increasing at unsupportable levels.
The inevitable result will be unsettling announcements of spending cutbacks and policy changes in what could turn out to be a horror budget in May. This prospect, along with continuing speculation about an end to the commodities boom and rising unemployment, does little to help the domestic economy.
Nevertheless, how we fare this year will be greatly influenced by future movements in the Australian dollar. Currently it is holding at just below US90½c and there is even speculation it is now undervalued. This could be the case if the commodity prices and demand hold up and even increase in 2014.
On the other hand, a lower value would be essential to help stabilise the economy if, as widely expected, commodity prices fall and unemployment rises.